On May 4, 2017 the House of Representatives passed the American Health Care Act (AHCA) which effectively repealed the Affordable Care Act (ACA). The final legislation, however, faces an uncertain outlook.

The Senate must pass the bill before it goes to the president. Senate Majority Leader Mitch McConnell has formed a 13-member group that will be tasked with drafting a Senate bill. This bill will almost certainly be different than the bill drafted by the House. If the Senate bill is not identical to the House bill, which it almost certainly will not be, then the legislation will have to go to a joint committee comprised of members of the House and Senate. If the legislation is to survive the joint committee, the House and Senate members in the joint committee will have to compromise to create a single bill. The bill will then go before the House and Senate where it will need to be passed by both chambers. If the newly created bill is passed by both chambers, then it will go to the president for his signature. Only upon the signature of President Trump will the legislation become law.

Some of the provisions repealing the ACA would be retroactive to 2016, some would be effective in 2017, and others would be effective at a later date.

Repeal provisions that would be effective retroactively for the 2016 tax year:

Increased penalty for non-qualified distributions from HSAs and Archer MSAs. Under the AHCA, the penalty would be either 10 percent or 15 percent.

Annual fee imposed on branded prescription drug sales

Medical device excise tax

Annual fee on health insurance providers

Elimination of a deduction for expenses allocable to Medicare Part D subsidy

The 10 percent tanning tax

Disallowance of any deduction for certain remuneration paid to individuals by certain health insurers

Repeal provisions that would be effective in a later tax year:

Premium tax credit (effective 2020)

The 0.9 percent additional Medicare tax (effective 2023)

Small employer health insurance credit (effective 2020)

Cadillac tax would be delayed until 2026

In addition to repealing the above mentioned items, the AHCA would also add or amend certain provisions to the tax code.

First, the AHCA would create a refundable tax to help offset the cost of purchasing health insurance. The credit would be based on the age of the individual, subject to a phase-out, and would range from $2,000 to $4,000. The credit would begin to phase out at $75,000 of income for a single person ($150,000 for married filing joint). The credit would not be available to married couples filing separate unless the couple would be within one of the limited exceptions. The credit would also be capped at an aggregate $14,000 for the taxpayer and the taxpayer’s family members. The bill would mandate that some process be created for an advance of the tax credit.

Next, the AHCA would alter the HSA rules. The AHCA would increase the contribution limits to at least $6,750 for individual coverage and $13,100 for family coverage beginning in 2018. Additionally, both spouses would be allowed to make a catch up contribution.

Lastly, the AHCA would lower the floor for deducting medical expenses to 5.8 percent of adjusted gross income.

About the AuthorRyan Miller is a partner in Katz, Sapper & Miller’s Tax Services Group. Ryan identifies innovative solutions to minimize taxes for his clients. Additionally, he oversees the international aspects of the firm’s tax practice helping companies and individuals navigate the complexities of doing business abroad.

About the AuthorStephen Schnelker is a manager in Katz, Sapper & Miller's Tax Services Group. With a strong background in analytical research, Stephen brings his extensive tax law knowledge to help clients minimize tax liabilities and ensure tax compliance. Connect with him on LinkedIn.